Correlation Between Palo Alto and Beacon Roofing

Can any of the company-specific risk be diversified away by investing in both Palo Alto and Beacon Roofing at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Palo Alto and Beacon Roofing into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Palo Alto Networks and Beacon Roofing Supply, you can compare the effects of market volatilities on Palo Alto and Beacon Roofing and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Palo Alto with a short position of Beacon Roofing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Palo Alto and Beacon Roofing.

Diversification Opportunities for Palo Alto and Beacon Roofing

0.81

Correlation Coefficient

Palo Alto  Beacon Roofing

Very poor diversification

The 3 months correlation between Palo and Beacon is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Palo Alto Networks and Beacon Roofing Supply in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beacon Roofing Supply and Palo Alto is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Palo Alto Networks are associated (or correlated) with Beacon Roofing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beacon Roofing Supply has no effect on the direction of Palo Alto i.e., Palo Alto and Beacon Roofing go up and down completely randomly.

Pair Corralation between Palo Alto and Beacon Roofing

Given the investment horizon of 90 days Palo Alto Networks is expected to under-perform the Beacon Roofing. But the stock apears to be less risky and, when comparing its historical volatility, Palo Alto Networks is 1.13 times less risky than Beacon Roofing. The stock trades about 0.0 of its potential returns per unit of risk. The Beacon Roofing Supply is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,449  in Beacon Roofing Supply on October 9, 2024 and sell it today you would earn a total of  749.00  from holding Beacon Roofing Supply or generate 7.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Palo Alto Networks  vs.  Beacon Roofing Supply

Palo Alto Networks

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Palo Alto Networks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Palo Alto is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Beacon Roofing Supply

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Beacon Roofing Supply are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Beacon Roofing may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Palo Alto and Beacon Roofing

The main advantage of trading using opposite Palo Alto and Beacon Roofing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Palo Alto position performs unexpectedly, Beacon Roofing can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Beacon Roofing will offset losses from the drop in Beacon Roofing's long position.

The idea behind Palo Alto Networks and Beacon Roofing Supply pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Fundamental Analysis module to view fundamental data based on most recent published financial statements.